Quota sharing refers to an insurance arrangement in which multiple insurers share the revenue and liabilities associated with insurance policies. Quota sharing has been used in reinsurance to reduce the risk portfolios of policies pose to individual primary insurers. For example, a reinsurer, in return for half the premiums received for a portfolio of policies, may agree to reimburse the primary insurer for half the costs arising from claims related to any of the policies in the portfolio. The portion of revenues and liabilities assumed by the reinsurer is referred to as a quota share rate.
In other situations, reinsurers have broken down portfolios of policies into segments and have agreed to different quota share rates for different segments of the portfolios. In both of these cases, however, the primary insurer is fully liable to the insured for all claims. As far as the customer is concerned, there is only a single insurer.
One challenge facing certain members of the insurance industry is a shortage of capacity. In order to take on new business, insurers need to maintain sufficient capital to handle potential losses. Lack of capacity leads to inefficiencies in the industry due to duplicative administration costs arising from customers seeking multiple tiers of insurance to fulfill their insurance needs.
Other insurers may have extra capacity with which they want to diversify their exposure without becoming subject matter experts in a particular industry. In addition, other capital holders outside of the insurance industry could contribute their capital to the insurance industry, but lack the expertise, systems, and/or desire to administer insurance policies.
Thus, a need exists in the art for systems and methods that would allow insurers to increase their capacity while keeping administration costs low.
Additional, it is recognized that increasing capacity for insurers can concomitantly increase their exposure to liability. Accordingly, needs have also been recognized in connection with increasing capacity while minimizing or forgoing added liability.